Use the Following Information to Answer the Question(s)below

question 16

Multiple Choice

Use the following information to answer the question(s) below.
(Please use a copy of the Cumulative Probabilities for the standard normal distribution for these problems. )
Taggart Transcontinental's stock has a volatility of 25% and a current stock price of $40 per share.Taggart pays no dividends.The risk-free interest rate is 4%.
-Consider a one-year,at-the-money call option on Taggart stock.The effect on the price of this call option due to an increase in the volatility from 25% to 40% is closest to:

• A)$0.70 increase.
• B)$1.70 decrease.
• C)$2.30 increase.
• D)$2.80 increase.

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Definitions:

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